No. of Recommendations: 1
It wouldn't even have to cover all expenses, just a significant portion. If you need 4% of your portfolio (excluding any calculation of NPV for SS) for income, but SS and/or pension provides income equal 1.5% of your portfolio, managing the portfolio to last 30 years or longer becomes a whole lot easier.


To be honest, I was thinking in the back of my mind as I typed the previous post you responded to of a particular goal my wife and I have, but failed to mention when I made the comment:

For example, if you would receive enough of an income stream from SS and Pension alone to cover all of your expenses/needs, you may be able to be more aggressive with your asset allocation.

The goal I was thinking of when I typed the comment "may be able to be more aggressive with your asset allocation" if SS and pension alone provided a large portion of one's income stream was setting an allocation that both provided additional needs for us as well as was able to grow enough to leave something to our heirs. That's not a goal everyone shares, so I didn't type it. However, I thought I should mention it just to qualify my comment when thinking about SS (and or pension) as income streams in retirement and how they may or may not impact one's asset allocation choices. I imagine if we did not have a goal of transfer remaining assets to heirs, and our target was instead to deplete our risk portfolio by "the end", it would indeed change our AA.

If you prepare a detailed cash flow table (or have i-Orp or PC do it for you) that includes all of the income events coming up in retirement (when SS starts and how much, when pension starts and how much, etc...) as well as how much is needed to be withdrawn from the risk portfolio to meet the retirement spending needs/desires - then once the percentage of the portfolio that is projected to be needed becomes better known, it would indeed be easier to manage for the longer term - as well as to manage in terms of setting an asset allocation that helps get you there, remain there, and cover the expected years.

i-Orp has already built into the detailed cash flow calculations the premise of projected cuts in SS benefits beginning in 2034 which helps one focus a bit better on other sources of income due to that inclusion. I haven't looked closely enough at PC or FIRECalc to see if they also allow one to factor in expected cuts in benefits. I try to remain more on the conservative or moderate side when I run any of those calculations

Obviously, financial life remains fluid which means there will continue to be tweaks in a cash flow table for all of us based on portfolio value, changes in SS benefits, changes in other streams of income, etc.... . That means the detailed cash flow table should indeed be updated if and when any changes become known.

This household is still - in our minds - about five years to a decade--ish out from what one would call a traditional retirement, but fully expect there to be bumps, surprises, adaptations, and changes in assumptions along the way between now and then. The first bump/change/surprise already occurred earlier this year with employment layoff and the resulting job change which immediately skewed the previously detailed cash flow calculation that I had set up and led to me running through a variety of scenarios. I would imagine those in retirement would be able to answer more from experience if the bumps/changes/surprises continue in retirement as much as they do in the decade leading up to it.

That being said, the OP who asked about factoring in SS when it comes to asset allocation has heard from enough of us now to at least mull a few things over.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.